Economics Social Science concerned with the efficient use

Economics- Social Science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants.

Microeconomics- Looks at individual issues. Theory of the firm. Macroeconomics- Big picture. Aggregate sense. Looks at everything as a whole. GDP/Unemployment

What is Basic Economic Problem? • All Resources are LIMITED. • All wants are INSATIABLE. – (Not able to be satisfied) = SCARCITY

What is Basic Economic Problem? • • 3 Basic Economic Questions: What to PRODUCE? How MUCH to PRODUCE?

What is Basic Economic Problem? • Because Resources are LIMITED. • Because wants are INSATIABLE. • = SCARCITY • We are forced to make CHOICES • CHOICES involve tradeoffs and opportunity costs.

TRADEOFFS • Tradeoffs: Giving up one good to have another.

Opportunity Costs • Opportunity Costs: The cost of a tradeoff. Value of the next best alternative sacrificed to obtain desired item. Study OR Go to the movies

What is the Production Possibilities Curve? • A production possibilities graph (PPC) is a model that shows alternative ways that an economy can use its scarce resources • This model graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency. • • 4 Key Assumptions Only two goods can be produced Full employment of resources Fixed Resources (Ceteris Paribus) Fixed Technology 9

Production “Possibilities” Table Bikes Computers A 14 0 B 12 2 C 9 4 D 5 6 E 0 8 f 0 10 Each point represents a specific combination of goods that can be produced given full employment of resources. NOW GRAPH IT: Put bikes on y-axis and computers on x-axis 10

Production Possibilities How does the PPG graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency? Impossible/Unattainable 14 (given current resources) A B Bikes 12 G C 10 8 Efficient D 6 Inefficient/ Unemployment 4 2 E 0 0 2 4 6 8 10 Computers 11

Opportunity Cost Example: 1. The opportunity cost of moving from a to b is… 2 Bikes 2. The opportunity cost of moving from b to d is… 7 Bikes 3. The opportunity cost of moving from d to b is… 4 Computer 4. The opportunity cost of moving from f to c is… 0 Computers 5. What can you say about point G? Unattainable 12

Production Possibilities CALZONES PIZZA A B C D E 4 0 3 1 2 2 1 3 0 4 • List the Opportunity Cost of moving from a-b, b-c, c-d, and d-e. • Constant Opportunity Cost- Resources are easily adaptable for producing either good. • Result is a straight line PPC (not common) 13

Production Possibilities PIZZA ROBOTS A 20 0 B 19 1 C 16 2 D 10 3 E 0 4 • List the Opportunity Cost of moving from a-b, b-c, c-d, and d-e. • Law of Increasing Opportunity Cost • As you produce more of any good, the opportunity cost (forgone production of another good) will increase. • Why? Resources are NOT easily adaptable to producing both goods. • Result is a bowed out (Concave) PPC

Constant vs. Increasing Opportunity Cost Identify which product would have a straight line PPC and which would be bowed out? Corn Cactus Wheat Pineapples

Production Possibilities 4 Key Assumptions Revisited • Only two goods can be produced • Full employment of resources • Fixed Resources (4 Factors) • Fixed Technology What if there is a change? 3 Shifters of the PPC 1. Change in resource quantity or quality 2. Change in Technology 3. Change in Trade 16

Robots Production Possibilities What happens if there is an increase in population? Pizzas 17

Robots Production Possibilities What happens if there is an increase in population? Pizzas 18

Production Possibilities Robots What if there is a technology improvement in pizza ovens Pizzas 19

Production Possibilities Robots What if there is a technology improvement in pizza ovens Pizzas 20

Q Question #1 New robot producing technology Robots A shift only for Robots Pizzas Q 21

Question #2 Decrease in the demand for pizza Robots Q The curve doesn’t shift! A change in demand doesn’t shift the curve Pizzas Q 22

Question #3 Mad cow disease kills 85% of cows Robots Q A shift inward only for Pizzas Q 23

Capital Goods Q Question #4 BP Oil Spill in the Gulf Decrease in resources decrease production possibilities for both Consumer Goods Q 24

Question #5 Faster computer hardware Capital Goods Q Quality of a resource improves shifting the curve outward Consumer Goods Q 25

Question #6 Many workers unemployed Capital Goods Q The curve doesn’t shift! Unemployment is just a point inside the curve Consumer Goods Q 26

Question #7 Significant increases in education Capital Goods Q The quality of labor is improved. Curve shifts outward. Consumer Goods Q 27

Utility Maximization • Utility: Pleasure, happiness, or satisfaction. • Make decisions to get the most satisfaction.

MARGINAL • In Economics, we define the word Marginal as extra or added. • Marginal Benefit: what is the extra positive outcome from a decision. • Marginal Cost: what is the extra cost of a decision. • MB = MC is optimal.

MARGINAL • MB = MC is optimal.

1. Structural: Skills no longer needed due to change in consumer demand. 2. Frictional: Voluntarily moving by employees from one job to another. 3. Seasonal: Due to changes in the year. 4. Cyclical: Ups and Downs in Business Cycle